Key Investment Metrics
Understand how to measure and compare your investment performance.
Quick Reference
| Metric | Best For | What It Measures |
|---|---|---|
| CAGR | Lump sum investments | Steady annual growth rate |
| XIRR | DCA / Multiple deposits | True return with cash flow timing |
| Total Return | Simple comparison | Overall percentage gain/loss |
| P&L | Absolute gains | Dollar amount gained or lost |
CAGR
Compound Annual Growth Rate
What Is CAGR?
CAGR shows what steady annual return would produce your result. It "smooths out" the volatility and gives you a single number to compare investments.
Example:
When to Use CAGR
Limitation: CAGR doesn't account for when you added money. If you're doing DCA (regular contributions), use XIRR instead.
XIRR
Extended Internal Rate of Return
What Is XIRR?
XIRR calculates your true annualized return by accounting for the timing and size of each cash flow. It's perfect for DCA investors who add money regularly.
Example (DCA investor):
XIRR vs CAGR: A Comparison
Same portfolio, different metrics:
Ignores that money was added gradually
Accounts for timing of each deposit
Why the difference? CAGR assumes all money was invested day one. XIRR knows later deposits had less time to grow.
Other Important Metrics
Total Return %
The simplest metric - how much your investment has grown overall.
(Current Value - Total Invested) / Total Invested x 100
Example: ($130k - $100k) / $100k = 30%
P&L (Profit & Loss)
The absolute dollar amount you've gained or lost.
Current Value - Total Invested
Example: $130k - $100k = +$30,000
Unrealized vs Realized
The difference between "paper gains" and locked-in profits.
Unrealized
Gains still in the market - can go up or down
Realized
Profits you've locked in by selling
Cost Basis
The total amount of money you've invested - your "skin in the game."
Sum of all your deposits (minus any withdrawals)
This is the baseline for calculating your returns
Which Metric Should You Use?
| Your Situation | Best Metric | Why |
|---|---|---|
| One-time investment (lump sum) | CAGR | Simple, comparable to benchmarks |
| Regular contributions (DCA, 401k) | XIRR | Accounts for timing of cash flows |
| Quick "how am I doing?" check | Total Return % | Easy to understand at a glance |
| Tracking actual gains | P&L | Shows real dollar impact |
Put Your Knowledge to Use
Compare your expected returns against popular investment benchmarks.